(Bloomberg Businessweek) -- On a bright January morning in northeastern Minnesota, Tom Clarke is standing in untrammeled snow on the rim of a vast pit ringed by birch and aspen. He’s wearing black dress shoes, gray slacks, a navy parka, and a tan from a vacation in Aruba. At his side, in red Adidas sneakers, is a British investment banker based in Dubai. They’re here because the hole they’re gazing at holds some of the richest iron ore deposits in North America. It hasn’t been mined, however, for more than 30 years, which is a grievous source of frustration to the people of Minnesota’s Mesabi Iron Range. Clarke has come here to remedy that.
“I see opportunity,” he says, waving a gloved hand at the pit. “Not just capitalist opportunity, but opportunity for the community, for the country.” His vision extends to the landscape beyond the hole, a mining ghost town of unfinished buildings and piles of steel beams left by the property’s previous owner, Indian energy conglomerate Essar Global Fund Ltd. Clarke plucked the operations out of bankruptcy last year. He intends to build the rare U.S. mine that not only excavates ore but also processes it into steelmaking ingredients.
Over the past three years, Clarke and entities in which he’s an investor also have acquired an iron mining operation not far from the Essar site; bankrupt coal mines in Alabama, West Virginia, and Canada; some offshore oil-and-gas assets; and a gold mine in California. And he has bid, thus far unsuccessfully, on steel mills. “Our goal,” he says, invoking Andrew Carnegie, “is to try to reintegrate everything: Have the coal mines and iron ore mines be the cost centers for the steel mill.”
Sketching these grand dreams—some might call them grandiose—is a 62-year-old accountant who’s spent most of his professional life running nursing homes. He never set foot on or in an actual mine until 2014. His voicemail message doesn’t reference mining endeavors, only the six nursing homes he operates as president of Kissito Healthcare Inc., based in Roanoke, Va. But he’s a hero to some in northeastern Minnesota, where thousands of mining jobs have disappeared since the late 1970s. “He’s an incredible man and down-to-earth,” says Brett Skyles, administrator of Itasca County, where the mine is located. “You’d never know that you just met a billionaire.”
It’s a mystery why anyone would jump into the grindingly difficult businesses of coal, iron, and steel, let alone Clarke, a charming, smile-a-minute, find-the-silver-lining man who is not a billionaire but does have a past that could give some Minnesotans pause. He was fired from one nursing-home chain, ran another that went into bankruptcy, and doesn’t always pay his bills on time—including some incurred at his mines. Over a glass of merlot at a hotel bar in Grand Rapids, Minn., he blithely acknowledges owing interest and penalties on back taxes dating to that 1999 bankruptcy. Consulting his phone, he says, “Today, the amount of money I owe the IRS is exactly $1,835,831.02. I’m paying $54,000 a month.”
He looks and sounds like the actor Bryan Cranston, though less Breaking Bad’s ruthless Walter White than the pleasantly hapless Hal Wilkerson of Malcolm in the Middle. In Minnesota he’s won over Governor Mark Dayton and other key politicians with promises of hundreds of jobs and millions of tax dollars. Now, to secure the rights to mine the abandoned Essar site, he must line up more than a half-billion dollars and some committed customers. It’s not clear that he’ll deliver, especially with Cleveland-Cliffs Inc., a giant rival that covets the Essar mine, doing everything it can to stop him.
Locals are counting on Clarke. One is Luke Engel, a strapping 26-year-old hunter, fisherman, hockey player, and unemployed mine worker whose father, grandfather, and five uncles were miners. Until late 2016, Engel was driving 100-ton trucks and bulldozers for Magnetation LLC, whose Minnesota operations extracted ore from waste rock.
“I was living the dream,” Engel says. Earning about $30 an hour, he bought a Harley and a pickup and looked into buying a house. Then, thanks partly to a global steel glut, Magnetation filed for bankruptcy protection and closed the plant where Engel worked. He kept living with his parents and made do with bartending and construction jobs. He considered leaving the area but is staying now because Clarke bought Magnetation out of bankruptcy a few months before acquiring the Essar mine. Engel hopes to latch on at one or the other—assuming they ever start up again. “The mining industry here is pretty much life,” he says. “I’m optimistic.”
Throughout his career, Clarke has proved adept at attracting people and money to his ventures. After 30 years in the elder-care industry, he remains president of Kissito, which manages a nursing home in Arizona and five in Virginia. “It’s a difficult business,” he says. “We got quite big, then we got small.”
It’s more complicated than that. In 1991, Clarke was fired from his position as chief financial officer of Berkshire Health Systems Inc., a regional operator of medical facilities in Massachusetts. The company had piled up debt, and the state attorney general investigated allegedly unauthorized intercompany transfers of $8.5 million to expand Berkshire’s nursing-home business. Berkshire agreed to strengthen its corporate governance. Clarke says he wasn’t responsible for any irregularities and that, all in all, “it was a good experience. I might never have been an entrepreneur if I had stayed.”
Clarke and his wife at the time then founded nursing-home operator Lenox Healthcare Inc. with a single home in Coconut Grove, Fla. To expand, he would call on large health-care companies and offer to take money-losing nursing homes off their hands. But in 1999, by which point Lenox had more than 100 nursing homes, a change in Medicare reimbursements slammed the industry. Lenox was one of several nursing-home companies that filed for Chapter 11 bankruptcy protection. Clarke was left with fewer than 50 homes and a slew of IRS liens for unpaid payroll taxes. He says the great thing about this was experiencing the bankruptcy process up close, which would prove valuable.
Clarke and his wife, Linda, divorced in 2004 after 24 years of marriage. The split was nasty, partly because Linda was also Clarke’s business partner. In a postdivorce lawsuit, she accused him of shifting money among corporate entities he controlled to keep it from her. “Mr. Clarke has a history of not paying vendors,” one of his ex-wife’s filings says. “He manages to keep the companies going from cash flow, one company constantly borrows from the other to stay afloat.” Another filing says Clarke’s companies owed vendors $1.5 million and, “rather than work in good faith to pay these vendors, Mr. Clarke recently held a conference at Disneyworld to the tune of $100,000, which comes on the heels of another $100,000 conference in Las Vegas in February.” Clarke says he was the one concerned about unpaid vendors, and the conferences were vital to his company’s business. His ex-wife didn’t return calls for this story.
In 2010 the former chief operating officer of Kissito accused Clarke of deliberately creating dozens of entities in different states to frustrate anyone who sued the company. In a whistleblower lawsuit alleging Clarke had overbilled Medicare, the former executive also said Clarke “underinsures his facilities in order to avoid paying any potential large judgments or fines.” Clarke says he cooperated with an extensive Department of Justice investigation and the government never accused him of wrongdoing.
Some odd detours led him to mining. He moved to Venezuela for the better part of a year and met Ana Velasquez, who would become his new wife and business partner. They moved to a farm in the Blue Ridge Mountains near Roanoke and threw themselves into charity projects, including a health-care nonprofit in Africa and another nonprofit that acquired a Virginia tourist attraction called Natural Bridge, a towering rock arch with a hotel and restaurant on the property.
Clarke borrowed $9.1 million from the state to buy Natural Bridge. Within 18 months he was behind on his payments, and a contractor was suing him for $1 million in unpaid bills. Clarke eventually paid the contractor. Virginia extended Clarke’s loan in return for the state’s operating the facility as a state park and eventually taking ownership of the bridge. At the time he said he wound up short of funds because expected donors didn’t come through. “I take full responsibility, but I was left at the altar,” he told the Roanoke Times.
Clarke says the experiences, particularly in Africa, sharpened his interest in the environment. He took a look at Southern Coal Corp., a mining concern in Roanoke owned by Jim Justice, now governor of West Virginia. After investigating the company’s record, Clarke commissioned a billboard that called it out as an egregious polluter. That got Southern Coal’s attention. Soon the billboard was gone, and Clarke and Justice were talking. Clarke became an unpaid consultant advising the company on how to address scores of state and federal environmental violations at its mines.
The project gave him a wacky idea: What if he bought a coal mine and bundled coal sales with federal carbon credits accumulated by planting millions of trees? In theory, the credits would help buyers of his coal stay under caps on carbon dioxide emissions. Clarke thought it could help both the environment and mining. In 2015 he formed ERP Compliant Fuels LLC (ERP for “earth restoration project”) to buy two West Virginia mines out of bankruptcy. He recruited veteran industry executives to run them and went around to utility companies peddling his coal-and-credits package. Nobody was interested.
Undaunted, Clarke kept buying bankrupt mines, mostly by paying pennies upfront while taking on debts and other liabilities. By 2017 he was a significant investor in eight coal mines. The four in western Canada now employ more than 540 people, and three of those are producing millions of tons of metallurgical coal, the stuff used to make steel. Prices for met coal, as it’s called, have risen from about $100 a ton when Clarke bought the Canada mines to more than $200 now. “That’s been our absolute home run,” he says.
Business isn’t as good in West Virginia, where one mine has been inactive since Clarke bought it. Another recently closed, taking with it 300 jobs, partly because Clarke’s tree planting plan went nowhere. “Our experience with Mr. Clarke has been quite frustrating and disappointing,” says Phil Smith, a spokesman for the United Mine Workers of America. The union stands to lose some or all of the $10 million it invested to restart the now-closed mine. Smith says, “What was once a showcase mine just a few years ago became an example of how fast a mine can sink into disrepair when its ownership loses interest.” Clarke says the mine would have closed in October 2015 if it weren’t for him. “It’s sad,” he says. “We were hoping things would be much different.”
A bottle of Domaine Ste. Michelle sparkling wine stands on a dusty shelf in the city hall of tiny Nashwauk, Minn. Then-Mayor Bob Fragnito bought it in the late 1990s when a company called Minnesota Iron & Steel announced plans to build a mining operation on the nearby Butler Taconite Mine site, which had been idle since the mid-1980s. Fragnito vowed to pop the bubbly when the new mine operation produced its first pellets of the low-grade iron ore called taconite.
Minnesota Iron & Steel didn’t make it, nor did a successor. Then, in 2008, two years after Fragnito died, Essar Group came to the rescue. About 1,000 people showed up to watch then-Governor Tim Pawlenty plunge a shovel into the dirt where the Indian energy behemoth vowed to spend $1.6 billion constructing a multifaceted operation that would convert ore into slabs of steel. Mark Mandich, a local politician, declared, “The day is finally here.”
It wasn’t. Essar’s Minnesota operation spent more than $1 billion before sending construction workers home and filing for Chapter 11 in 2016.
Clarke first showed up in Minnesota after Magnetation filed for bankruptcy. He snagged the company in early 2017 by promising to pay about $55 million, a fraction of the $700 million it cost to build the facilities. Last spring the abandoned Essar assets went up for auction. Cleveland-Cliffs, with Governor Dayton’s unofficial blessing, was expected to prevail. After all, the 170-year-old company was a fixture on the Iron Range, employing Minnesotans for decades.
Then Clarke started evangelizing about how Essar and Magnetation could forge an iron mining power unlike any in the U.S. As outlined in a business plan submitted to federal bankruptcy court by his Minnesota financial entity, Chippewa Capital Partners LLC, Magnetation would quickly resume operations, with boats loaded with taconite pellets steaming from its Indiana processing plant to China. That would supply cash to complete unfinished structures on the Essar site, where mining would begin as early as 2019.
One possible addition is a 540-foot-tall contraption that resembles a rocket ship and uses intense heat to convert ore into higher-value products such as hot-briquetted iron, or HBI. By 2020, the plan said, Clarke’s Minnesota properties would be producing 10 million tons of processed ore a year, or a bit more than a fifth of the 46 million tons produced in the U.S. last year.
Don’t fall for it, Cliffs told Minnesota. The company was already suing Clarke over his failure to pay in full for two mines it sold him in 2015. Chief Executive Officer Lourenco Goncalves urged a mining conference last year not to listen to “false promises,” calling Clarke a “fly-by-night” operator. At another conference, Goncalves said, “Tom Clarke is the walking eagle—too full of shit to fly.” Goncalves declined to be interviewed for this story.
At the auction last April, Cliffs bid $75 million. Clarke offered $250 million, and the bankruptcy judge named him the winner. But he still had hurdles to clear, because the state controls the mine’s mineral leases; no leases, no mining. Governor Dayton gave Clarke until Aug. 31 to show he could raise the hundreds of millions of dollars needed to complete the mine. Clarke missed that deadline and another a month later.
One big problem: The U.S. Environmental Protection Agency demanded the Magnetation plant in Indiana fix serious deficiencies before resuming operation—so the facility wouldn’t be generating cash to bootstrap Essar construction. The plant still isn’t producing taconite pellets.
Clarke maintained a small construction crew at Essar while lobbying Dayton and other officials for more time. They’ve been forgiving. “We’re so ready for this project to get over the finish line,” says Itasca County Commissioner Ben DeNucci. “We’re tired of telling ‘poor me’ stories.” Dayton declined to be interviewed.
Clarke also courted local contractors by paying them what Essar didn’t. “He wanted to hear our stories,” says Derek Bostyancic, president of Northern Industrial Erectors Inc., which was out more than $19 million after Essar departed. He says Clarke’s sparse mining background won’t matter if he hires good local people. “If anybody’s going to make this go, it will be him.”
Bostyancic has reason to believe. On Dec. 22, the day the Essar property formally emerged from bankruptcy, he was coaching his young son at a hockey rink when a text appeared on his cellphone. It was Clarke, saying he’d just wired $10 million. “Merry Christmas,” Clarke wrote. Bostyancic had to leave the ice to collect his emotions.
That moment was made possible by John Oram, the skinny Brit in sneakers who accompanied Clarke on the January tour of the Essar site. Oram is chief investment officer of the DSA Group, with partners who manage more than $10 billion in investments in energy, technology, health care, and other businesses. A related entity, Nubai Global Investment Ltd., has invested $165 million in the mine and committed to putting in $85 million more. Nubai owns 95 percent of the equity in the mine vs. Clarke’s 3.75 percent and 1.25 percent held by another Chippewa executive.
Oram lets Clarke do most of the talking while on a tour of the mine with two reporters. He met Clarke through a mutual friend and started working with him early last year. Clarke’s checkered past was part of what attracted Oram and his investors—especially his encounters with bankruptcy. Of Clarke’s role in the Lenox Chapter 11, Oram says, “It’s strange, he’s remarkably proud of it.” Clarke’s advice was crucial in navigating the byzantine Essar bankruptcy, particularly with wary local suppliers, contractors, and politicians. “We manage the funds. He just manages the relationships,” Oram says.
They have a lot of work to do. They must close on an additional $600 million in financing by June 30 or risk losing crucial mineral leases controlled by the state. They also must sign up a general contractor and customers committed to purchasing at least 4.2 million tons of product a year.
In addition, Clarke must demonstrate that Chippewa has access to the bulk of the minerals at the Essar property. This is complicated because, as is often the case with mines, the underground minerals are owned by multiple entities—including Clarke’s nemesis, Cleveland-Cliffs. As Clarke and DSA were bringing the Essar assets out of bankruptcy in December, Cliffs said it had acquired from a third-party owner iron ore reserves throughout the Essar site. The company erected “No Trespassing” signs and warned Clarke to stay away. “Despite several botched attempts by others,” the company said, “it is now the time for Cleveland-Cliffs to sit at the table with other responsible parties and develop a realistic solution for this site.” Cliffs CEO Goncalves hammered the point in a Feb. 1 speech in Eveleth, Minn., threatening to take his Minnesota business to Michigan’s Upper Peninsula if Cliffs is denied access to Essar ore.
In early March, Clarke quietly finagled the purchase of other Essar reserves owned by yet another third party. A color-coded map of the site showing who owns what looks like a quilt stitched by a drunk, with scattered parcels belonging to Clarke, Cliffs, and the state. Clarke says he and Cliffs are 50-50 partners in some places. Cliffs doesn’t see it that way. Related litigation is pending. Some Minnesota politicians have urged the two to work together, but détente isn’t yet in sight.
After the mine tour, Clarke rushes off to meet with county officials in Grand Rapids, then to Hibbing for dinner with two state senators, then to late-night drinks with reporters. Four hours later, he flies to Ohio to meet with a prospective partner, then hustles back to Minnesota for a dinner with the governor before returning home to Virginia. All the while he’s constantly on his phone, talking, emailing, texting.
Who needs this aggravation anyway? “My wife probably wishes I didn’t spend so much time at work,” Clarke says. “She’s probably wondering why we sold $21.6 million in one of our companies and invested it in mining.” But he swears he’s having a blast. He has reached an age, he says, “where we can be surprised every day how little we know about ourselves. I just love solving complex problems. And I love blast furnaces and big trucks.” —With Joe Deaux
To contact the authors of this story: Matt Robinson in New York at mrobinson55@bloomberg.net, Bryan Gruley in Chicago at bgruley@bloomberg.net.
To contact the editor responsible for this story: Daniel Ferrara at dferrara5@bloomberg.net.
©2018 Bloomberg L.P.
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